How is the Aussie dollar performing and why? Will 2024 be a better year?

How is the Aussie dollar performing? If you only compared it to the USD, you could argue it isn’t performing well, lagging the US dollar not to mention the Euro or Pound. In our view, this doesn’t tell the full picture, although there’s no hiding the dollar’s performance against the greenback.

How is the Aussie dollar performing against the USD?

It is underperforming the USD, trading between 65-68c for much of 2023. Many would remember the days of the early 2010s when the dollar was at parity with the US, especially Aussies travelling to the US in recent times. Many would have expected the Aussie dollar to do better given economists forecasted that the US would enter a recession and find it harder to get inflation under control compared to Australia. In the end, neither was the case – Australia has found it harder to contain inflation and the US economy has remained strong, meaning that the US dollar is more appealing for investors.

At the same time, the dollar is better than it was in the early 2000s, during the GFC and even the early days of the COVID pandemic, where it fell below 50c. So, things could be a lot worse than they are now!

What about AUD/NZD?

The Aussie dollar has fared better against the New Zealand dollar. The Aussie dollar has bought between NZ$1.05 and NZ$1.15 for much of 2023.

In our view, it has mostly been because of the weak New Zealand economy, the pace of interest rate hikes (they began earlier than other jurisdictions, increased them well above other jurisdictions and yet still have persistently high inflation) and its heavily reliance on agriculture.

What about AUD/Euro and AUD/GBP?

We’ll address both together because many of factors are similar here. Both the UK and European Union have been impacted by high inflation as well as Russia’s invasion of Ukraine.

Nonetheless, both economies have not been as reliant on China and/or commodity exports as Australia, meaning the Euro and Pounds are stronger currencies against our dollar. 1 Aussie dollar has bought between 0.59-0.64 Euros and between 0.52-0.55 pound sterling for much of 2023.

What about AUD/JPY?

While the yen has been appreciating against our dollar, it is fair to say that our dollar is much stronger than the yen, with one Aussie dollar buying ~96 yen.

The yen has been weak because the Bank of Japan has been more dovish compared to other jurisdictions. This is to say that the BOJ has not raised interest rates to the extent that other jurisdictions have even thought inflation is high.

What about AUD/CNY?

1 AUD buys 4.67 CNY (Chinese Yuan/Renminbi). China has far lower inflation compared to other jurisdictions, although speculation has been rife that Chinese stimulus could help with it.

What is the future outlook?

We can only estimate because so many factors impact forex movements. Thinking specifically of the AUD/USD, we don’t expect to see our dollar hit parity any time soon.

Nonetheless, barring extreme scenarios as those we noted above, it is plausible we could see the dollar rise in 2024 if inflation gets under control in Australia, so long as the rate cutting cycle does not begin faster in the US compared to Australia. It is all up to the Federal Reserve.

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